Optimal credit policy to increase supplier's profit with price dependent demand function

Abstract

Most of the researches on inventory control under trade credit deal with the problem of determining the economic order quantities from the perspective of the buyer, assuming that a certain credit period is already set by the supplier and the demand rate is constant. The purpose of this thesis is to analyze the trade credit problem from the view point of supplier. We consider one supplier and one or multiple retailers system in which the supplier determines a credit period for the product he sells to retailer in a way that his profit can be maximized. The retailer, in turn, is expected to set the retail price of the product for his customers on the basis of the price elasticity of demand for the product to maximize his own profit. The availability of the credit period from the supplier enables the retailer to choose an optimum retail price from a wider range of price options. The study is divided into the following four parts. First part of the study is devoted to formulating the problem of retailer who jointly determines the retail price of the product and the economic order quantity such that his profit is maximized. Under Day-terms credit for ordinary purchase, the relationships between credit period and other decision variables are investigated. Two types of demand functions are considered for the analysis:(1) the constant price elasticity demand function and (2) the linear demand function. Second part of the study deals with the supplier``s problem of setting an optimal credit period with a single retailer who always behaves optimally according to his joint price and lot size determination policy. The main focus of the analysis lies on whether the supplier can increase his profit through offering a credit period or not. Third part of the study considers the supplier who jointly determines the credit period and the economic production quantity with a single retailer. As a supplier``s production policy, LQ policy is adopted, where L is a positive integer and ...